Tuesday, 7 February, 2023

Digital Banking In The Spotlight

Rudra Prasad Adhikari

The monetary policy, unveiled by Nepal Rastra Bank (NRB) recently, has laid emphasis on the digital banking. It has opened up discussions for cryptocurrency and the expansion of digital finance access. If the policy is implemented effectively, the current fiscal year would be a turning point in the digital transformation of the banking sector.

In the monetary policy, it is mentioned that the current fiscal year 2021/22 is going to be celebrated as the ‘Digital Payment Promotion Year’ with an intention of diminishing cash payment.

The revenue received by the government and all types of payment, including social security allowance, pension, etc., will be made through bank’s digital payment methods. For its implementation, necessary infrastructures will be managed and awareness programmes will be conducted.

Payment service

Next, it is said that the payment service providers and payment system operators will be encouraged to provide electronic payment services to the customers of micro-financing institutions (MFIs) and cooperatives by expanding the scope of business. This will further increase the access of digital finance.

Also in the policy, it is mentioned that there will be a review in the limit of digital payment transactions. As the people are shifting from physical payment methods to digital payment methods due to pandemic, this provision will definitely benefits the large number of users.

The policy has addressed about digital currency for the first time. As stated, keeping in view the increasing use of digital currency globally, necessary feasibility study will be done for digital currency by the Central Bank. This will not only open the door for bringing Central Bank Digital Currency (CBDC) but also opened the formal discussion of cryptocurrency, its possibilities and future in Nepal.

According to the Think Tank Atlantic council, more than 83 countries around the world holding 90 per cent of the world’s gross domestic product (GDP), are currently researching the use of digital currencies.

Among these, the central banks of five countries had officially practiced cryptocurrency. Cryptocurrency works using a blockchain technology which is a decentralised technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security. Bitcoin, Ethereum, Tether, Binance Coin, Cardano, etc. are the major cryptocurrencies in the present days.

As per the policy, a national payment switch will be set up this year for Nepal's own payment card. It stipulates that a national payment switch will be installed for the settlement and documentation of payment transactions within Nepal and use Nepal's own payment card while maintaining interconnection between electronic payment devices. This will be implemented by NRB through its subsidiary company Nepal Clearing House Limited (NCHL). This will eliminate the current foreign dependency on payment switch.

Now the people can process the loan without physically presenting in the banks and financial institutions (BFIs). As mentioned in the monetary policy, NRB is going to formulate the digital loan guidance for digital loan disbursement by BFIs. After its implementation, the service recipient can apply for loan from home and then loan will be disbursed by the banks and financial institutions by approving the application online. The will gradually minimise the time consumed for loan processing.

Digital KYC

Nepal Rastra Bank (NRB) is going to implement digital KYC by ending the system of having to go to the bank to submit and update the personal details of the customers. As stated in the policy, the e-KYC system will be implemented based on technology by simplifying the system of customer identification. It won’t only ease the customers & BFIs but also minimise the cost for both parties.

A part from above the monetary policy 2021/22 provisioned that the Internet Service Providers (ISPs) working in remote areas will get special refinance facility. This will support in internet extension in the remote areas of the country and hence increase the access digital services in such areas.

Looking thoroughly the monetary policy, it seems, positive steps have been taken in the digitalisation of banking sector. However, there are several challenges ahead. If it is implemented effectively, it will enable the digital ecosystem to flourish, thereby helping to realise the vision of ‘Digital Nepal’. For the effective implementation of the policy, the NRB, banks and financial institutions (BFIs), service providers and the stakeholders should work in tandem and be equally responsible.

(Adhikari, an IT expert, works at Rastriya Banijya Bank. rdpdad@gmail.com)